Market Overview

Considering Buying the Dip in Airlines?

Considering Buying the Dip in Airlines?

While there was plenty of chatter Monday morning around American Airlines emerging from bankruptcy and merging with US Airways, let's take a look at a rare buying opportunity in Airlines stocks this afternoon.

Airlines stocks finally stumbled a bit in the first week of December, marking the first time since August that the sub-industry has seen even a modest pull-back. Buying the dips of what's working is a great way to enter trades, but the problem here is that a) The Airlines sub-industry is tiny and B) this "dip" may not be enough to hop on board high-fliers (pun intended!) like Southwest, Delta, or Alaska Air. However, scanning through the constituents, there is a great opportunity to enter into one of the smaller cap Airlines, Allegiant Travel (NASDAQ: ALGT) for a nice swing-trade.

See also: Barron's Recap - Top 10 Stocks for 2014

Allegiant has been trending steadily higher since October of 2012, and it took until the summer of 2012 for the stock to consolidate in a significant fashion. Allegiant found its base just below $95 through the month of August, before resuming its run higher into the end of the year. Recently, Allegiant hit highs of $114.70 on November 29 before pulling back along with the other Airlines stocks. Currently, Allegiant has based rather quickly and looks poised for a turnaround in the short-term.

The stock has excellent support in the $105-$108 area, which it spent the latter half of October and most of November establishing. Allegiant's recent base is at the upper-end of this support, which seems to be holding just fine over the past few sessions. ALGT is also operating comfortably above its 50-day moving average, which is a bullish sign.

Since the end of its summer consolidation, Allegiant has been making higher highs and higher lows while establishing solid support levels. This is clearly visible in its up-trending channel (see chart below). There is immediate upside to $114.70, which is 6.95 percent higher from current prices. A stop at a break of the support range ($104) makes the downside risk 3.02 percent, which makes the reward to risk ratio of this trade greater than 2 to 1.

The recent pullback in Airlines creates a rare opportunity to get some long exposure to one of the top-performing sub-industries of 2013. Allegiant has a strong technical set-up and features a compelling trade set-up that other Airlines stocks don't offer.


When to Consider Entering the Trade:

At the current price (~$107.35).

When to Consider Exiting the Trade:
At a close below $104.00 (Breakdown) / An intraday price of $114.70 or above (Profit-Taking)

Disclosure: At the time of publication the editor and affiliated companies own the following positions: None

Note: Positions may be bought or sold while this publication is in circulation without notice.

Allegiant Travel Co - Last 30 Days

Allegiant Travel Co - Last 3 Months

Allegiant Travel Co - Last 6 Months

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